<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 24
Dividend Reinvestment Plan....................... 25
</TABLE>
ACD ANR 2/99
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together, we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your trust.
ECONOMIC OVERVIEW
Despite a stormy year in the global economy, the United States ended 1998
with only a moderate slowdown in growth. The nation's gross domestic product, a
measure of economic health, grew 3.9 percent during the year, matching 1997's
growth rate and indicating that our nation's economy remains strong. A
continuation of low inflation--only a 1.6 percent increase in the consumer price
index over the last 12 months--also helped sustain the domestic economy and kept
inflation-adjusted interest rates attractive.
Although the year ended on a positive note, the economic environment was
quite unsettled in the third quarter, with the Asian financial crisis
contributing to slowing corporate profits in the United States. Given the
uncertainty surrounding emerging market nations and the near-collapse of a major
U.S. hedge fund, the stock and bond markets experienced significant volatility
during this period. With instability as a backdrop, American and foreign
investors alike pursued a flight to quality--seeking the relative safety of
large-company stocks and government bonds.
In the last few months of the year the global financial situation improved
in conjunction with the Federal Reserve's interest rate decreases. In response
to declining corporate profits and mounting international concerns, the Fed
lowered interest rates three times, with 0.25 percent cuts in September,
October, and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to keep the economy growing.
Dozens of foreign central banks also reduced interest rates in an effort to
stimulate their economies. These actions gave a boost to investor confidence and
encouraged a return to a more diversified range of investments in the last few
months of the year.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
The bond market continued to rally as interest rates fell during the year,
with U.S. Treasury securities outpacing corporate and municipal bonds in price
appreciation. Investors' desire for safer investments amid the global economic
storm led to strong demand for high-quality bonds. In fact, the U.S. Treasury
bond was considered one of the most attractive places to invest by both domestic
and international investors, propelling the 30-year Treasury yield to 4.71
percent in October--its lowest yield since the federal government began selling
these bonds in 1977. However, higher-yielding bonds suffered--primarily during
the third quarter--as investors' demand for quality increased. Corporate bond
prices, especially among lower-rated issues, fell in conjunction with concerns
about declining corporate profits.
OUTLOOK
Our outlook for the domestic economy is positive, and we anticipate
continued low inflation and healthy economic growth. However, the aftereffects
of the global economic slowdown may continue to put pressure on corporate
earnings in the first half of the year. Internationally, we anticipate that low
interest rates and declining inflation will lead to improvements in troubled
areas such as Asia and Latin America. With the successful launch of the euro,
the new European transnational currency, we believe that many foreign markets
will become increasingly attractive in 1999.
In the long term, we are optimistic that the stock market will continue its
record growth, although we could experience additional volatility in the months
ahead if concerns about high stock valuations and increasing earnings pressure
become more pronounced. Combined with growing questions about corporate and
government reactions to the Year 2000 computer problem, we could see an
increasingly cautious market by mid-year.
Additional details about your trust, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE YEAR ENDED DECEMBER 31, 1998
VAN KAMPEN INCOME TRUST
(NYSE TICKER SYMBOL--VIN)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............. 5.05%
One-year total return based on NAV(2)...................... 5.51%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................... 8.32%
SHARE VALUATIONS
Net asset value............................................ $7.84
Closing common stock price................................. $7.75
One-year high common stock price (06/15/98)................ $8.3125
One-year low common stock price (10/09/98)................. $7.1875
</TABLE>
(1) Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.
(2) Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Market
volatility may have adversely affected Trust performance since December 31,
1998. Trust shares, when sold, may be worth more or less than their original
cost.
3
<PAGE> 5
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
These securities are generally issued by agencies of the U.S. government,
such as Government National Mortgage Association (GNMA, or "Ginnie Mae") and
Federal Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac").
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN INCOME TRUST
We recently spoke with the management team of the Van Kampen Income Trust about
the key events and economic forces that shaped the markets during the past 12
months. The team includes Tom Copper, portfolio manager, and Peter W. Hegel,
chief investment officer for fixed-income investments. The following excerpts
reflect their views on the Trust's performance during the 12-month period ended
December 31, 1998.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE TRUST
OPERATED DURING THE PAST 12 MONTHS?
A The primary backdrop for the domestic fixed-income market was the
lingering cloud of global volatility during the year. Economic weakness in
Asia spilled into other economies, including Russia and South America,
during the third quarter. This environment further fueled the flight to quality
that emerged in the first half of the year. As investors flocked to the relative
safety of U.S. Treasury securities, the yield for the benchmark 30-year Treasury
bond dropped below its second-quarter trading range.
The biggest boost for the bond market came late in the third quarter and
early in the fourth quarter, when the market was inspired by a string of
interest rate cuts by the Federal Reserve Board. By year end, the yield for the
30-year Treasury bond-which, like all bond yields, moves in the opposite
direction of its price-had fallen to 5.09 percent, near the record low level for
long-term Treasuries. For the first time since 1990, the returns for
high-quality, low-risk bonds soundly exceeded those for higher-risk bonds.
Q APPROXIMATELY HALF OF THE TRUST'S PORTFOLIO IS INVESTED IN HIGHER-RISK
BONDS. WHAT HAPPENED TO THOSE SECURITIES DURING THIS TIME?
A High-yield bonds came under pressure as investors demanded higher yields
in exchange for incurring higher risk. As a result, the risk premium for
high yields increased during the period, as represented by the dramatic
widening in yield between the Chase High Yield Index and the 10-year Treasury
note. As the year began, the yield spread between these two benchmarks was 359
basis points. In the third quarter, conditions began to change dramatically,
coinciding with overseas currency devaluations. As countries like Russia began
to experience difficulty meeting their debt obligations, nervous investors
responded with renewed caution to the inherent element of credit risk in
high-yield securities. Consequently, yield spreads widened to levels not seen
since 1990-91. The yield spread peaked in mid-October at 764 basis points. From
this point onward, spreads slowly began to contract to a year-end level of 626
basis points. Investors cheered as the Fed initiated a series of rate decreases
intended in part to maintain liquidity and provide credit to the system.
5
<PAGE> 7
Q IN LIGHT OF THESE CONDITIONS, HOW WERE THE TRUST'S ASSETS ALLOCATED?
A The Income Trust invests in a portfolio comprised primarily of high-yield
corporate bonds and U.S. government securities, and we left the balance
between these two sectors basically unchanged. At the end of the period,
approximately 54 percent of the Trust's long-term investments were allocated to
high-yield investments, and 44 percent were invested in Treasury and agency
securities.
High-yield securities underperformed during the second half of the year as
risk premiums and yield spreads widened. At the same time, the yield for the
30-year Treasury declined during the period as its price rose correspondingly,
providing strong total returns for government securities. As interest rates
fell, the portfolio's mortgage-backed securities (specifically, GNMA securities)
became subject to higher prepayment rates and thus diminished in value and
relative importance to the portfolio. Consequently, we allowed the Trust's
allocation to Treasury securities to increase, thus maintaining our balance in
the high-quality side of the portfolio.
Examining the portfolio composition, we largely maintained the Trust's
credit quality profile and our focus on B-rated bonds, which provide a yield
advantage over higher-quality investments. We also made relatively few changes
to the portfolio's sector exposure. Once again, media and cable companies
dominated new issuance during the period; accordingly, the consumer services
sector, including several broadcasting companies, made up the second-largest
sector positions in the portfolio. The largest sector position, utilities,
consisted primarily of telecommunications companies. These firms benefited from
increased investor interest in the new generation of wireless communication
services. The remainder of the Trust's assets were invested in a varied group of
companies that were carefully selected to allow the Trust to participate in
areas where we feel the economy is expected to enjoy reasonable growth.
Q HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A For the 12-month period ended December 31, 1998, the Trust generated a
total return of 5.05 percent(1) at market price and 5.51 percent(2) at net
asset value. This return reflects a decrease in market price per common
share from $8.00 on December 31, 1997 to $7.75 on December 31, 1998, and
includes reinvestment of dividends totaling $0.645 per share. The dividend
represents a distribution rate of 8.32 percent based on the closing common stock
price on December 31, 1998. By comparison, the Lehman Brothers High Yield Index
posted a total return of 1.87 percent for the same period, and the Lehman
Brothers Government Index posted a 9.85 total return. These indices are
broad-based, unmanaged measures that reflect the general performance of
high-yield bond securities and government securities, the two primary sectors
held in the Trust's portfolio. The indices do not include any commissions or
fees that an investor would actually have to pay in order to purchase the
securities they represent. Please refer to the chart on page 3 for additional
performance numbers.
6
<PAGE> 8
Q HOW WILL YOU MANAGE THE TRUST IN THE COMING MONTHS?
A We'll continue to maintain our focus on preserving a barbell-shaped
portfolio with high-grade Treasury and agency paper on one end and a
careful selection of B-rated corporate bonds on the other. With
expectations of a slowing economy, we will emphasize less volatile, non-cyclical
companies in the noninvestment grade portion of the portfolio.
[SIG]
Tom Copper
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INCOME TRUST
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
<S> <C>
Utilities................... 14.2%
Consumer Services........... 13.3%
Raw Materials/Processing
Industries................ 6.3%
Consumer Distribution....... 5.0%
Producer Manufacturing...... 5.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
Raw Materials/Processing
Industries................ 10.1%
Consumer Services........... 8.6%
Utilities................... 5.6%
Producer Manufacturing...... 5.1%
Consumer Distribution....... 4.1%
</TABLE>
PORTFOLIO COMPOSITION BY CREDIT QUALITY AS
A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
AAA, U.S. Govt., AAA, U.S. Govt.,
and Govt. Agency...... 43.9% and Govt. Agency...... 42.9%
BBB..................... 1.3% BBB..................... 1.3%
BB...................... 5.9% BB...................... 7.0%
B....................... 41.0% [PIE CHART] B....................... 37.3% [PIE CHART]
CCC..................... 3.5% CCC..................... 4.7%
Non-Rated............... 3.6% Non-Rated............... 5.8%
Other................... 0.8% Other................... 1.0%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's.
DIVIDEND HISTORY
[BAR GRAPH]
<TABLE>
<CAPTION>
For the Period Ended December 31, 1998
DIVIDEND
--------
<S> <C>
Jan 1998 0.05375
Feb 1998 0.05375
Mar 1998 0.05375
Apr 1998 0.05375
May 1998 0.05375
Jun 1998 0.05375
Jul 1998 0.05375
Aug 1998 0.05375
Sep 1998 0.05375
Oct 1998 0.05375
Nov 1998 0.05375
Dec 1998 0.05375
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
</TABLE>
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY
(000) DESCRIPTION COUPON MATURITY MARKET VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DOMESTIC CORPORATE BONDS (US $) 47.7%
CONSUMER DISTRIBUTION 3.7%
500 Argilink Foods, Inc., 144A--Private
Placement (a).......................... 11.875% 11/01/08 $ 510,000
500 Aurora Foods, Inc., Ser D.............. 9.875 02/15/07 546,250
500 Big 5 Corp., Ser B..................... 10.875 11/15/07 507,500
300 Iron Age Corp., 144A--Private Placement
(a).................................... 9.875 05/01/08 273,000
250 Pantry, Inc............................ 10.250 10/15/07 262,187
239 Pantry, Inc............................ 12.500 11/15/00 249,158
1,250 Pathmark Stores, Inc. (b).............. 0/10.750 11/01/03 1,031,250
500 Pathmark Stores, Inc................... 12.625 06/15/02 490,000
500 Southern Foods Group LP, 144A--Private
Placement (a).......................... 9.875 09/01/07 525,000
------------
4,394,345
------------
CONSUMER DURABLES 1.6%
900 Aetna Industries, Inc.................. 11.875 10/01/06 945,000
500 MCII Holdings USA, Inc. (b)............ 0/12.000 11/15/02 435,000
200 Venture Holdings, Inc.................. 9.750 04/01/04 197,000
300 Venture Holdings, Inc., Ser B.......... 9.500 07/01/05 298,500
------------
1,875,500
------------
CONSUMER NON-DURABLES 1.8%
850 Consoltex Group, Inc., Ser B........... 11.000 10/01/03 867,000
800 Del Monte Corp., 144A--Private
Placement (a) (b)...................... 0/12.500 12/15/07 556,000
250 Delta Mills, Inc., Ser B............... 9.625 09/01/07 243,125
500 Outsourcing Services Group,
144A--Private Placement (a)............ 10.875 03/01/06 475,000
------------
2,141,125
------------
CONSUMER SERVICES 11.1%
250 Americredit Corp....................... 9.250 02/01/04 242,500
1,250 Booth Creek Ski Holdings, Inc., Ser
B...................................... 12.500 03/15/07 1,243,750
750 Capstar Broadcasting Partners (b)...... 0/12.750 02/01/09 618,750
600 Casino Magic of Louisiana Corp., Ser
B...................................... 13.000 08/15/03 679,500
500 Echostar Communications Corp. (b)...... 0/12.875 06/01/04 512,500
1,250 Frontiervision Holdings LP (b)......... 0/11.875 09/15/07 1,048,437
250 Frontiervision Holdings LP,
144A--Private Placement (a) (b)........ 0/11.875 09/15/07 209,688
500 Hollywood Casino Corp.................. 12.750 11/01/03 532,500
500 Hollywood Theaters, Inc................ 10.625 08/01/07 360,000
250 Horseshoe Gaming LLC, Ser B............ 12.750 09/30/00 266,875
1,000 IHF Holdings, Inc. (b)................. 0/15.000 11/15/04 120,000
250 International Cabletel, Inc., Ser A
(b).................................... 0/12.750 04/15/05 226,250
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY
(000) DESCRIPTION COUPON MATURITY MARKET VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
1,000 International Cabletel, Inc., Ser B
(b).................................... 0/11.500% 02/01/06 $ 820,000
1,225 Majestic Star Casino L.L.C. ........... 12.750 05/15/03 1,277,062
1,000 Marcus Cable Co. (b)................... 0/14.250 12/15/05 963,750
700 Northland Cable Television............. 10.250 11/15/07 740,250
1,000 Park & View, Inc., Ser B............... 13.000 05/15/08 790,000
375 Premier Parks, Inc..................... 9.250 04/01/06 389,063
329 SFX Broadcasting, Inc., Ser B.......... 10.750 05/15/06 361,900
1,000 Splitrock Services, Inc., Ser B........ 11.750 07/15/08 880,000
500 Tele-Communications, Inc............... 9.250 01/15/23 604,350
500 United International Holdings, Ser B
(b).................................... 0/10.750 02/15/08 275,000
250 Young America Corp, Ser B.............. 11.625 02/15/06 107,500
------------
13,269,625
------------
ENERGY 1.2%
500 Hurricane Hydrocarbons, 144A--Private
Placement (a).......................... 11.750 11/01/04 265,000
500 KCS Energy, Inc., Ser B................ 11.000 01/15/03 460,000
500 Kelley Oil & Gas Partners.............. 7.875 12/15/99 395,000
325 Petroleum Heat & Power, Inc. .......... 12.250 02/01/05 318,500
------------
1,438,500
------------
FINANCE 1.7%
1,250 Americo Life, Inc...................... 9.250 06/01/05 1,287,500
500 Americredit Corp....................... 9.250 02/01/04 485,000
250 Superior National Capital Trust I...... 10.750 12/01/17 248,750
------------
2,021,250
------------
HEALTHCARE 1.2%
1,000 Mariner Post-Acute Network, Inc., Ser B
(b).................................... 0/10.500 11/01/07 450,000
500 Maxxim Medical, Inc. .................. 10.500 08/01/06 531,250
550 Oxford Health Plans, 144A--Private
Placement (a).......................... 11.000 05/15/05 528,000
------------
1,509,250
------------
PRODUCER MANUFACTURING 4.8%
500 Communications Instruments, Ser B...... 10.000 09/15/04 482,500
200 Compass Aerospace Corp., 144A--Private
Placement (a).......................... 10.125 04/15/05 195,000
250 Eagle-Picher Industries, 144A--Private
Placement (a).......................... 9.375 03/01/08 235,000
1,000 Filtronic PLC, 144A--Private Placement
(a).................................... 10.000 12/01/05 1,003,750
750 GNI Group, Inc., Ser B................. 10.875 07/15/05 660,000
750 GS Technologies Operating, Inc......... 12.000 09/01/04 517,500
810 IMO Industries, Inc.................... 11.750 05/01/06 822,150
250 Interlake Corp......................... 12.000 11/15/01 270,000
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY
(000) DESCRIPTION COUPON MATURITY MARKET VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
1,000 Interlake Corp......................... 12.125% 03/01/02 $ 1,022,500
250 Kevco, Inc............................. 10.375 12/01/07 226,250
250 Waxman Industries, Inc., Ser B (b)..... 0/12.750 06/01/04 137,500
250 W.R. Carpenter North America........... 10.625 06/15/07 254,375
------------
5,826,525
------------
RAW MATERIALS/PROCESSING INDUSTRIES
5.9%
1,000 Acetex Corp............................ 9.750 10/01/03 995,000
250 American Pacific Corp., 144A--Private
Placement (a).......................... 9.250 03/01/05 256,875
500 Doe Run Resources Corp., 144A--Private
Placement (a).......................... 11.250 03/15/05 392,500
500 Dyersburg Corp., Ser B................. 9.750 09/01/07 452,500
250 Hydromchem Industrial Service, Ser B... 10.375 08/01/07 240,000
390 Pioneer Americas Acquisition, Ser B.... 9.250 06/15/07 308,100
1,000 Printpack, Inc., Ser B................. 10.625 08/15/06 985,000
750 Radnor Holdings Corp., Ser B........... 10.000 12/01/03 757,500
500 Scoville Fasteners, Inc., Ser B........ 11.250 11/30/07 435,000
1,000 Tekni-Plex, Inc., Ser B................ 11.250 04/01/07 1,120,000
667 United Stationers Supply Co. .......... 12.750 05/01/05 743,705
450 WHX Corp............................... 10.500 04/15/05 414,000
------------
7,100,180
------------
TECHNOLOGY 0.9%
1,000 Crown Castle International Corp. (b)... 0/10.625 11/15/07 695,000
500 Dictaphone Corp........................ 11.750 08/01/05 360,000
------------
1,055,000
------------
TRANSPORTATION 2.1%
200 Atlas Air, Inc., 144A--Private
Placement (a).......................... 9.250 04/15/08 199,500
500 Atlas Air, Inc......................... 10.750 08/01/05 526,250
1,000 Greyhound Lines Inc., Ser B............ 11.500 04/15/07 1,140,000
250 Moran Transportation Co................ 11.750 07/15/04 268,750
250 Sea Containers Ltd., Ser B............. 12.500 12/01/04 273,750
200 Trans World Airlines................... 11.500 12/15/04 172,000
------------
2,580,250
------------
UTILITIES 11.7%
500 American Cellular Corp., 144A--Private
Placement (a).......................... 10.500 05/15/08 495,000
400 Centennial Cellular Operating Co.,
144A--Private Placement (a)............ 10.750 12/15/08 403,000
1,100 E.Spire Communications, Inc. (b)....... 0/13.000 11/01/05 726,000
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY
(000) DESCRIPTION COUPON MATURITY MARKET VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
55 GST Telecommunications, Inc.,
144A--Private Placement (a) (b)........ 0/13.875% 12/15/05 $ 33,000
1,250 Intermedia Communication, 144A--Private
Placement (a) (b)...................... 0/12.500 05/15/06 984,375
300 Metromedia Fiber Network, Inc.,
144A--Private Placement (a)............ 10.000 11/15/08 310,125
500 Metronet Communications, 144A--Private
Placement (a) (b)...................... 0/9.950 06/15/08 308,750
250 Metronet Communications................ 12.000 08/15/07 275,625
500 Microcell Telecommunications, Ser B
(b).................................... 0/14.000 06/01/06 373,750
500 NTL, Inc., 144A--Private Placement (a)
(b).................................... 0/9.750 04/01/08 310,000
500 Optel, Inc., 144A--Private Placement
(a).................................... 11.500 07/01/08 505,000
500 Optel, Inc., Ser B..................... 13.000 02/15/05 490,000
500 Pegasus Communications, Ser B.......... 9.625 10/15/05 502,500
750 Price Communications Cellular Holdings,
Inc. (d)............................... 11.250 08/15/08 712,500
500 Price Communications Wireless Inc.,
144A--Private Placement (a)............ 9.125 12/15/06 507,500
750 Price Communications Wireless Inc. .... 11.750 07/15/07 802,500
175 Primus Telecommunications Group........ 11.750 08/01/04 182,000
500 Primus Telecommunications Group,
144A--Private Placement (a)............ 9.875 05/15/08 475,000
1,000 PSINET, Inc., Ser B.................... 10.000 02/15/05 1,000,000
1,000 PSINET, Inc., 144A--Private Placement
(a).................................... 11.500 11/01/08 1,050,000
1,250 SBA Communications Corp, 144A--Private
Placement (a) (b)...................... 0/12.000 03/01/08 762,500
1,000 Startec Global Communications,
144A--Private Placement (a)............ 12.000 05/15/08 860,000
500 Triton Communications LLC,
144A--Private Placement (a) (b)........ 0/11.000 05/01/08 235,625
1,500 Verio, Inc............................. 10.375 04/01/05 1,470,000
300 Verio, Inc., 144A--Private Placement
(a).................................... 11.250 12/01/08 306,000
------------
14,080,750
------------
TOTAL DOMESTIC CORPORATE BONDS 47.7%................................ 57,292,300
------------
FOREIGN BONDS AND DEBT SECURITIES 6.3%
BELGIUM 0.4%
500 Hermes Europe Railtel BV, 144A--Private
Placement (US $) (a)................... 10.375 01/15/09 508,125
------------
BERMUDA 0.6%
750 Pegasus Shipping Hellas, 144A--Private
Placement (US $) (a)................... 11.875 11/15/04 671,250
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY
(000) DESCRIPTION COUPON MATURITY MARKET VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BRAZIL 0.6%
500 Mrs Logistica SA, Ser B, 144A--Private
Placement (US $) (a)................... 10.625% 08/15/05 $ 265,000
500 Multicanal Participacoes, Ser B (US
$)..................................... 12.625 06/18/04 435,000
------------
700,000
------------
CHINA 0.3%
1,000 Cathay International, Ltd.,
144A--Private Placement (US $) (a)..... 13.000 04/15/08 385,000
------------
LUXEMBOURG 0.6%
1,000 Millicom International Cellular (US $)
(b).................................... 0/13.500 06/01/06 705,000
------------
MEXICO 1.6%
1,000 Gruma SA De CV (US $).................. 7.625 10/15/07 892,700
500 Grupo Televisa SA Corp (US $) (b)...... 0/13.250 05/15/08 375,000
500 Satelites Mexicanos SA, 144A--Private
Placement (US $) (a)................... 10.125 11/01/04 405,000
250 Vicap Sa De Cv, 144A Private Placement
(US $) (a)............................. 10.250 05/15/02 235,000
------------
1,907,700
------------
NETHERLANDS 0.4%
750 Netia Holdings BV, Ser B (US $) (b).... 0/11.250 11/01/07 442,500
------------
SWEDEN 0.4%
500 Stena AB (US $)........................ 10.500 12/15/05 518,750
------------
UNITED KINGDOM 1.4%
300 Cenargo International, PLC,
144A--Private Placement (US $) (a)..... 9.750 06/15/08 285,000
1,000 Diamond Cable Co. (US $) (b)........... 0/13.250 09/30/04 985,000
500 Telewest PLC (US $) (b)................ 0/11.000 10/01/07 418,125
------------
1,688,125
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES 6.3%......................... 7,526,450
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (US $) 42.7%
5,000 Federal Farm Credit Banks Medium Term
Note................................... 6.375 08/06/07 5,387,500
4,284 Government National Mortgage
Association Pool....................... 7.500 07/15/23-08/15/23 4,418,442
3,955 Government National Mortgage
Association Pool....................... 8.000 03/15/17-10/15/22 4,117,845
1,372 Government National Mortgage
Association Pool....................... 8.500 01/15/23-12/15/24 1,457,724
2,715 Government National Mortgage
Association Pool....................... 9.000 05/15/16-12/15/24 2,917,658
544 Government National Mortgage
Association Pool....................... 9.500 11/15/09-06/15/19 590,059
3,500 U.S. T-Bonds........................... 7.250 05/15/16 4,241,055
3,000 U.S. T-Bonds........................... 7.500 11/15/16 3,727,500
11,500 U.S. T-Bonds........................... 8.875 02/15/19 16,373,125
7,000 U.S. T-Notes........................... 7.000 07/15/06 7,971,250
------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS.............. 51,202,158
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION MARKET VALUE
- --------------------------------------------------------------------------
<S> <C>
EQUITIES 0.6%
American Telecasting, Inc. (250 Common Stock Warrants)
(c)....................................................... $ 250
Dairy Mart Convenience Stores, Inc. (1,666 Common Stock
Warrants) (c)............................................. 500
Metronet Communications (250 Common Stock Warrants) (c)..... 7,750
NTL, Inc. (1,188 Common Stock Warrants) (c)................. 14,844
Optel, Inc., Ser B (500 Common Shares) (c).................. 1,000
Park & View, Inc. (1,000 Common Stock Warrants) (c)......... 62,000
Petroleum Heat & Power, Inc. (1,097 Preferred Shares) (c)... 1,152
Signature Brand (500 Common Stock Warrants) (c)............. 10,950
Splitrock Services, Inc. (1,000 Common Stock Warrants)
(c)....................................................... 10
Startec Global Communications (1,000 Common Stock Warrants)
(c)....................................................... 250
Supermarkets General Holdings Corp. (26,550 Preferred
Shares) (c) (d)........................................... 584,100
------------
TOTAL EQUITIES.............................................. 682,806
------------
TOTAL LONG-TERM INVESTMENTS 97.3%
(Cost $116,987,289)..................................... 116,703,714
REPURCHASE AGREEMENT 1.4%
BA Securities ($1,660,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated
12/31/98, to be sold on 01/04/99 at $1,660,904) (Cost
$1,660,000)................................................. 1,660,000
------------
TOTAL INVESTMENTS 98.7%
(Cost $118,647,289)..................................... 118,363,714
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%................. 1,618,881
------------
NET ASSETS 100.0%.......................................... $119,982,595
============
</TABLE>
(a) 144A securities are those which are exempt from registration under rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Non-Income producing security.
(d) Payment-in-kind security.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $118,647,289)....................... $118,363,714
Cash........................................................ 4,878
Interest Receivable......................................... 2,280,871
Other....................................................... 51,932
------------
Total Assets.......................................... 120,701,395
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 500,000
Income Distributions...................................... 67,612
Investment Advisory Fee................................... 66,466
Administrative Fee........................................ 10,256
Affiliates................................................ 4,690
Accrued Expenses............................................ 40,444
Trustees' Deferred Compensation and Retirement Plans........ 29,332
------------
Total Liabilities..................................... 718,800
------------
NET ASSETS.................................................. $119,982,595
============
NET ASSETS CONSIST OF:
Common Shares (no par value with unlimited shares
authorized, 15,308,194 shares issued and outstanding)..... $132,397,633
Accumulated Undistributed Net Investment Income............. 386,440
Net Unrealized Depreciation................................. (283,575)
Accumulated Net Realized Loss............................... (12,517,903)
------------
NET ASSETS.................................................. $119,982,595
============
NET ASSET VALUE PER COMMON SHARE ($119,982,595 divided by
15,308,194 shares outstanding)............................ $ 7.84
============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $11,147,058
Dividends................................................... 76,789
-----------
Total Income............................................ 11,223,847
-----------
EXPENSES:
Investment Advisory Fee..................................... 798,802
Administrative Fee.......................................... 122,893
Trustees' Fees and Expenses................................. 15,357
Custody..................................................... 10,204
Legal....................................................... 8,108
Other....................................................... 227,298
-----------
Total Expenses.......................................... 1,182,662
-----------
NET INVESTMENT INCOME....................................... $10,041,185
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 422,724
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 3,558,549
End of the Period......................................... (283,575)
-----------
Net Unrealized Depreciation During the Period............... (3,842,124)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(3,419,400)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 6,621,785
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 10,041,185 $ 10,138,473
Net Realized Gain..................................... 422,724 2,352,790
Net Unrealized Appreciation/Depreciation During the
Period.............................................. (3,842,124) 442,703
------------ ------------
Change in Net Assets from Operations.................. 6,621,785 12,933,966
Distributions from Net Investment Income.............. (9,863,152) (11,047,048)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (3,241,367) 1,886,918
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment........................................ 141,700 -0-
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (3,099,667) 1,886,918
NET ASSETS:
Beginning of the Period............................... 123,082,262 121,195,344
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $386,440 and $213,167
respectively)....................................... $119,982,595 $123,082,262
============ ============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Trust
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------
1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of the Period............... $8.050 $7.926 $ 7.94 $ 7.28
------ ------ ------ ------
Net Investment Income................. .657 .663 .658 .65
Net Realized and Unrealized
Gain/Loss........................... (.224) .183 (.011) .655
------ ------ ------ ------
Total from Investment Operations........ .433 .846 .647 1.035
------ ------ ------ ------
Less:
Distributions from Net Investment
Income.............................. .645 .722 .661 .645
Distributions from Net Realized
Gains............................... -- -- -- --
------ ------ ------ ------
Total Distributions..................... .645 .722 .661 .645
------ ------ ------ ------
Net Asset Value, End of the Period...... $7.838 $8.050 $7.926 $ 7.94
====== ====== ====== ======
Market Price Per Share at End of the
Period................................ $7.750 $8.000 $7.500 $7.250
Total Investment Return at Market
Price (a) (c)......................... 5.05% 16.97% 12.95% 21.83%
Total Return at Net Asset
Value (b) (c)......................... 5.51% 11.32% 8.61% 19.13%
Net Assets at End of the Period (In
millions)............................. $120.0 $123.1 $121.2 $121.4
Ratio of Operating Expenses to Average
Net Assets (b)........................ .96% .91% 1.00% .94%
Ratio of Net Investment Income to
Average Net Assets.................... 8.17% 8.32% 8.40% 8.50%
Portfolio Turnover...................... 47% 55% 36% 34%
</TABLE>
(a) Total Investment Return at Market Price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Trust's dividend reinvestment plan.
(b) Total Return at Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(c) Prior to fiscal year end 1992, this was not a required disclosure.
18
<PAGE> 20
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------
1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 8.15 $ 7.85 $ 7.70 $ 6.66 $ 7.90 $ 9.06
------ ------ ------- ------ ------ ------
.65 .78 .845 .88 .974 1.06
(.8577) .285 .1625 1.05 (1.242) (1.116)
------ ------ ------- ------ ------ ------
(.2077) 1.065 1.0075 1.93 (.268) (.056)
------ ------ ------- ------ ------ ------
.6623 .765 .8575 .89 .972 1.078
-- -- -- -- -- .026
------ ------ ------- ------ ------ ------
.6623 .765 .8575 .89 .972 1.104
------ ------ ------- ------ ------ ------
$ 7.28 $ 8.15 $ 7.85 $ 7.70 $ 6.66 $ 7.90
====== ====== ======= ====== ====== ======
$6.500 $7.750 $ 7.625 $7.375 $5.625 $7.500
(8.06%) 11.82% 15.22% -- -- --
(2.08%) 14.36% 13.61% -- -- --
$111.4 $124.7 $ 119.6 $116.3 $100.6 $119.4
.96% 1.00% .99% 1.03% 1.00% .97%
7.94% 8.99% 10.71% 12.11% 13.25% 12.18%
45% 53% 54% 50% 29% 20%
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Income Trust, formerly known as Van Kampen American Capital Income
Trust, (the "Trust") is registered as a diversified closed-end management
investment company under the Investment Company Act of 1940, as amended. The
Trust's investment objective is to provide current income through investing in a
portfolio of debt securities.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Fixed income investments are stated at value using market
quotations or indications of value obtained from an independent pricing service.
Investments in securities listed on a securities exchange are valued at their
sales price as of the close of such securities exchange. Unlisted securities and
listed securities for which the last sales price is not available are valued at
the mean of the last reported bid and asked prices or, if not available, at
their fair value as determined in accordance with procedures established in good
faith by the Board of Trustees. Short-term securities with remaining maturities
of 60 days or less are valued at amortized cost.
Trust investments include lower-rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal and
interest payments. At December 31, 1998, debt securities rated below investment
grade and comparable unrated securities represented approximately 54% of the
long-term investment portfolio.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At December 31, 1998, there were no
when issued or delayed delivery purchase commitments.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The Trust may invest in repurchase agreements, which are short-term
investments whereby the Trust acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Trust may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Trust will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Trust.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized.
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At December 31, 1998, the Trust had an accumulated capital loss
carryforward for tax purposes of $12,153,006 which will expire between December
31, 1999 and December 31, 2003. Of this amount, $10,053,213 will expire on
December 31, 1999. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year.
At December 31, 1998, for federal income tax purposes, cost of long- and
short-term investments is $118,647,289, the aggregate gross unrealized
appreciation is $5,782,148 and the aggregate gross unrealized depreciation is
$6,065,723, resulting in net unrealized depreciation on long- and short-term
investments of $283,575.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to shareholders. Net realized gains, if
any, are distributed annually. Distributions from net realized gains for book
purposes may include
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
short-term capital gains. All short-term capital gains are included in ordinary
income for tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1998 fiscal year have been identified and appropriately reclassified. A
permanent difference of $8,877,376 related to the expiration of a capital loss
carryforward has been reclassified from accumulated net realized loss to
capital. Additionally, other expenses which are not deductible for tax purposes
in the amount of $3,074 were reclassified from accumulated net investment income
to capital. Finally, $127,845 related to market discount recognized upon
disposition of securities and $132,605 related to losses on paydowns of mortgage
pool obligations were reclassified from accumulated net realized loss to
accumulated undistributed net investment income.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average weekly net assets of the Trust. In addition, the
Trust will pay a monthly administrative fee to Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen"), the Trust's Administrator, at an annual
rate of .10% of the first $250 million and .05% of the amount in excess of $250
million of the average weekly net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and providing certain
services to shareholders.
For the year ended December 31, 1998, the Trust recognized expenses of
approximately $8,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the year ended December 31, 1998, the Trust recognized expenses of
approximately $49,500 representing Van Kampen's cost of providing accounting
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At December 31, 1998 and December 31, 1997, paid in surplus related to common
shares aggregated $132,397,632 and $141,136,383, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares..................... 15,290,019 15,290,019
Shares Issued Through Dividend
Reinvestment....................... 18,175 -0-
------------ ------------
Ending Shares........................ 15,308,194 15,290,019
============ ============
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $56,409,561 and $58,269,193 respectively.
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio of Van Kampen Income Trust, as of December 31, 1998,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the ten years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. We conducted
our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Income Trust at December 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the ten years in the
period then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 4, 1999
24
<PAGE> 26
DIVIDEND REINVESTMENT PLAN
The Trust pays distributions in cash, but if you own shares in your own name,
you may elect to participate in the Trust's dividend reinvestment plan (the
"Plan"). Under the Plan, if the Trust declares a dividend or capital gain
distribution payable either in cash or shares of the Trust and the market price
of shares on the payment date equals or exceeds their net asset value, the Trust
will issue new shares to you at a value equal to the higher of the net asset
value or 95% of the market price. If such market price is lower than net asset
value, or if dividends or capital gain distributions are payable only in cash,
then you will receive shares purchased on the New York Stock Exchange or
otherwise on the open market. If the market price exceeds net asset value before
the Plan Agent has completed its purchases, the average purchase price may
exceed net asset value, resulting in fewer shares being acquired than if the
Trust had issued new shares.
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gain distributions does not relieve you of any income tax
which may be payable (or required to be withheld) on dividends or distributions.
You may begin or discontinue participation in the Plan at any time by
written notice to the address below. If you withdraw from the Plan, you may
rejoin at any time if you own the required 100 shares. Elections and
terminations will be effective for distributions declared after receipt. If you
withdraw from the Plan, a certificate for the whole shares and a check for the
fractional shares, if any, credited to your Plan account will be sent as soon as
practicable after receipt of your election to withdraw, or, if you wish, State
Street Bank and Trust Company, the Trust's custodian, will sell your shares and
send you the proceeds less a service fee of $2.50 and less brokerage
commissions. Under the rules generally applicable to sales of securities, a sale
of shares (including fractional shares) will be a taxable event for U.S. federal
income tax purposes and may be a taxable event for state, local and foreign tax
purposes. Except for brokerage commissions, if any, which are borne by Plan
participants, all costs of the Plan are borne by the Trust. The Trust reserves
the right to amend or terminate the Plan on 30 days' written notice prior to the
record date of the distribution for which such amendment or termination is
effective.
Record stockholders should address all notices, correspondence, questions or
other communications about the Plan to:
BOSTON EQUISERVE LP
P.O. BOX 8200
BOSTON, MA 02266-8200
(800) 341-2929
If your shares are not held directly in your name, you should contact your
brokerage firm, bank or other nominee for more information and to see if your
nominee will participate in the Plan on your behalf. If you participate through
your broker and choose to move your account to another broker, you will need to
re-enroll in the Plan through your new broker.
25
<PAGE> 27
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
26
<PAGE> 28
VAN KAMPEN INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL* - Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02105
SHAREHOLDER SERVICING AGENT
BOSTON EQUISERVE LP
P.O. Box 8200
Boston, Massachusetts 02266-8200
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
ERNST & YOUNG LLP
1221 McKinney Suite 2400
Houston, Texas 77010
* "Interested" persons of the Fund, as defined
in the Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1999
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
TAX NOTICE TO CORPORATE
SHAREHOLDERS
For 1998, 0.79% of the dividends
taxable as ordinary income
qualified for the 70% dividends
received deduction for
corporations.
Inquiries about an investor's
account should be referred to
the trust's transfer agent:
BOSTON EQUISERVE LP
P.O. Box 8200
Boston, Massachusetts 02266-8200
Telephone: (800) 821-1238
ALASKA AND HAWAII
Call Collect: (781) 575-2000
Ask for closed end fund account
services
27
<PAGE> 29
RESULTS OF SHAREHOLDER VOTES
The Joint Annual Meeting of Shareholders of the Trust was held on July 28,
1998, where shareholders voted on the election of trustees and independent
public accountants.
1) With regard to the election of the following trustees by the common
shareholders:
<TABLE>
<CAPTION>
# OF SHARES
---------------------
IN FAVOR WITHHELD
- ----------------------------------------------------------------------
<S> <C> <C>
David C. Arch.................................. 11,493,720 196,526
Howard J Kerr.................................. 11,494,220 196,026
Dennis J. McDonnell............................ 11,494,623 195,624
</TABLE>
The other trustees of the Trust whose terms did not expire in 1998 are: Rod
Dammeyer, Theodore A. Myers, Dr. Steven Muller, Ph.D., Don G. Powell, Hugo
Sonnenschein, and Wayne W. Whalen.
2) With regard to the ratification of Ernst & Young LLP as independent
public accountants for the Trust, 11,474,136 shares voted in favor of the
proposal, 76,982 shares voted against and 139,129 shares abstained.
28
<PAGE> 30
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> INCOME TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 118,647,289<F1>
<INVESTMENTS-AT-VALUE> 118,363,714<F1>
<RECEIVABLES> 2,280,871<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 56,810<F1>
<TOTAL-ASSETS> 120,701,395<F1>
<PAYABLE-FOR-SECURITIES> 500,000<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 218,800<F1>
<TOTAL-LIABILITIES> 718,800<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,397,633
<SHARES-COMMON-STOCK> 15,308,194
<SHARES-COMMON-PRIOR> 15,290,019
<ACCUMULATED-NII-CURRENT> 386,440<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (12,517,903)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (283,575)<F1>
<NET-ASSETS> 119,982,595
<DIVIDEND-INCOME> 76,789<F1>
<INTEREST-INCOME> 11,147,058<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,182,662)<F1>
<NET-INVESTMENT-INCOME> 10,041,185<F1>
<REALIZED-GAINS-CURRENT> 422,724<F1>
<APPREC-INCREASE-CURRENT> (3,842,124)<F1>
<NET-CHANGE-FROM-OPS> 6,621,785<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (9,863,152)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 18,175
<NET-CHANGE-IN-ASSETS> (3,099,667)
<ACCUMULATED-NII-PRIOR> 213,167<F1>
<ACCUMULATED-GAINS-PRIOR> (21,822,763)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 798,802<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,182,662<F1>
<AVERAGE-NET-ASSETS> 122,900,082
<PER-SHARE-NAV-BEGIN> 8.050
<PER-SHARE-NII> 0.657
<PER-SHARE-GAIN-APPREC> (0.224)
<PER-SHARE-DIVIDEND> (0.645)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.838
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite
basis and not on a class basis
</FN>
</TABLE>
